www.marketchange-eureg.com

1. FIXNETIXThe ultimate trading advantage

2. Managing Director
Jefferson Young
MiFID & MiFIR Update
Matthew Argent

3. Editor FT trading Room
Financial Times
MiFID & MiFIR Update
Philip Stafford

4. Chief Administration Officer
Fixnetix Limited
bob.fuller@fixnetix.com
Major changes in EU
trading regulation & how it
might affect you
Bob Fuller

5. Where is the London market now?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargaining – Attempting to make deals.
• Depression – Feelings of hopelessness.
• Acceptance – Getting on with life.

6. EU Regulations, where are we?
• EMIR – Passed
• OTC Derivatives – Passed
• MAD 2 Directive – Passed
• MAD 2 Regulation – Passed
• MiFID 2 Directive – Will be passed 16th April 2014
• MiFIR 2 Regulation – Will be passed 16th April 2014
Latest/almost final versions of MiFID 2 and MiFIR dated the 17th February 2014

7. Under EU law
Directives
• must be transposed into each Member State’s
national law by secondary legislation
• ample scope for incorrect/incomplete porting
Regulations
• ‘binding in their entirety & directly applicable in all
Member States’
What is the difference between a
Directive and a Regulation?

8. Where are we in the MiFID II process?
For the US to recognise the EU withing
the Dodd Frank regime MiFID 2 and
MiFIR 2 MUST be passed before the EU
parliament retires in April
(for the May Elections)

9. • MiFID 1 is NOT repealed but a lot of the definitions
are changed i.e. It’s not just about Equities, but
about everything except FX.
• No mixing of the prop book with customer orders
unless you are an Systematic Internaliser. The end
of Broker Crossing Networks as we know them.
• Much more transparency, with increased restrictions
on trading ‘in the Dark’ ( 8% in market total for any
instrument and 4% for any market venue – then 6
months of NO dark activity!)
Main Market Structure items 1

10. • The Equity model is to be used as the base model
for ALL instrument types.
• This will inevitably move ALL instrument types to
electronic trading (the demise of voice trading)
which will require more connectivity and less
traders.
• Greater emphasis on Best Execution so more
historic proof of what you did and why.
• Mandatory Clearing of new instruments.
Main Market Structure Items 2

11. Main Market Structure Items 3
• Controls and constraints on High Frequency
Trading. Including prior approval by a regulator!
• Both firms and individuals will be subject to fines
and/or other sanctions given any ‘ignoring of the
rules’.
• Non Equity Clearing open to competition over
time.

12. MiFID 196 pages
MiFID 2 464 pages
MiFIR 60 pages
MiFIR 2 243 pages
Original total 256 pages
New total 707 pages
Overall very nearly 3 times the size.
Note how much bigger MiFIR is over 4 times the size
Some Statistics to ponder

13. MiFID II’s much more reliance on Regulation rather
than Directive plus the new sanction regime
characterises the significantly altered risk/reward
balance.
A big change from the much lighter touch framework
that has been in place since competition in equities
trading was first opened up five years ago by MiFID
What is the main structural difference
between MiFID and MiFID 2?

14. Financial Transaction Tax
Still being proposed by 11 EU countries with
Equities being set at 0.1% and Derivatives at
0.01%. Due soon?
• Extra Territoriality
• Definition of when it is due
• Competitiveness of EU institutions
May include FX (see recent EU legal challenge!)
What other EU rules may affect Trading?

15. German HFT rules
Now in place
• Need to have a capitalised presence in
Germany to Algo/HFT trade
• May move flow to London
Local EU laws

16. What Structural Changes may this cause?
• Reduction/removal of margin income on customer flow
• Dramatic reduction in voice trading, more electronic
trading – smaller trading rooms?
• Potential reduction in liquidity for some instruments
• Increased IT costs / reduction in revenues
This is very likely to lead to:
• More specialisation within an entity, only concentrate on
what you are good at.
• Increased IT spend and increased IT risk.
• More outsourcing or use of utilities

17. Any Other Structural Changes?
All of these changes are moving formally Back Office End of Day functions
to be more Front Office Real-Time ones.
For example there will be a need to move collateral in real-time, due to:
• More transactions being cleared requiring more initial margin.
• As the CCP’s will be more regulated they will not be able to offer so
much intra day credit so to carry out the next trade they will need to
have control of the collateral.
• This will lead to:
• The need to settle transactions quicker to enable the proceeds to be
used as collateral.
• The lack of available collateral putting a stop to trading activity!
All of which will require major changes to systems and communications
infrastructure for these current Back Office functions.

18. Where is the market?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargaining – Attempting to make deals.
• Depression – Feelings of hopelessness.
• Acceptance – Getting on with life.

19. Immediate Preparations for you
• Speak with your compliance departments
• Read all the regulations
• Attend conferences and events on regulations
• Discuss with peer group and industry associations
Most of all, these regulations will need significant Senior
Management involvement as they will affect what you
trade and how you trade it.

20. Panel Q&A
Moderator
Phil Stafford
Financial Times
Vivienne Bannigan – Policy Director, Capital Markets, BBA
Bob Fuller - CAO, Fixnetix
Richard Kemp - Senior Partner, Kemp Little
Elizabeth Callaghan – Capital Markets Regulatory Specialist

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